Macro turmoil sends U.S. exchange volume sky high

MiaLamar

TAKING THE PULSE: An unprecedented downgrade of the U.S. credit rating in August, heightened worries over a sovereign debt crisis in Europe and a host of other macroeconomic challenges sent trading volume soaring on exchanges in the third quarter as investors clamored to switch positions and hedge risk.

Looking ahead to results, analysts at Keefe, Bruyette and Woods earlier this month raised earnings estimates for CME Group Inc.
CME, -1.65%
NYSE Euronext
NYX, +0.20%
and IntercontinentalExchange Inc.
ICE, -1.13%
noting futures as the quarterly "standout" among exchange products. The firm added, however, that it doesn't believe "exceptional volume is the new normal"--and other observers caution that the upheaval may drive investors out of the market.

Wall Street Expectations: Analysts polled by Thomson Reuters expect earnings of 66 cents a share on revenue of $435 million. The company reported 50 cents and $372 million, respectively, a year ago.

Key Issues: Following its failed takeover of arch-rival NYSE Euronext, Nasdaq OMX has refocused on building its core business, expanding trading-related services and returning capital to shareholders. Third-quarter trading in U.S.-listed shares and options bounded higher on volatility and growth was even stronger on the firm's Nordic markets, though currency shifts are anticipated to weigh on European profits.

Wall Street Expectations: Analysts expect the company to earn $4.64 a share on $872 million in revenue. CME reported $3.66 and $733.4 million, respectively, a year earlier.

Key Issues: The third quarter was host to escalating concerns over the health of European banks, a broad and ongoing crisis that has pushed investors into CME Group's futures market to hedge risk tied to interest rates, currencies and stock market moves. August brought the 163-year-old exchange's busiest single trading session ever. For the quarter, contract volume climbed more than one-quarter over prior-year levels, with equity-index, interest-rate and metals futures all sharply rising.

Wall Street Expectations: Analysts are looking for earnings of $1.76 a share on $336 million in revenue. A year ago, ICE reported earnings of $1.29 a share, or $1.42 excluding acquisition-related costs and other items, on $287.1 million in revenue.

Key Issues: Turmoil in August and September helped the energy-focused market operator book robust daily volume in the third quarter, led by a 28% surge in its European platform where traders flocked to deal crude oil and natural gas contracts. Trade in Brent crude--ICE's biggest market--jumped 41% over the third quarter of 2010 and the firm also saw better-than-expected pickup in newer businesses like foreign exchange futures and credit derivatives clearing.

Wall Street Expectations: The company is expected to post earnings of 70 cents a share on $706 million in revenue. NYSE Euronext reported earnings of 49 cents a share, or 46 cents excluding a deferred tax benefit and other items, on $599 million in revenue a year ago.

Key Issues: An 18% surge in European derivatives trading is seen powering NYSE Euronext's results, while its U.S. options business surged 48% and stock trading on both sides of the Atlantic spiked. Profits may be weighed down, however, by a stronger dollar versus the euro and the sterling, in which the company collects trading fees for its European markets.

Meanwhile, hurdles remain for the Big Board's planned $17.7 billion tie-up with fellow trading powerhouse Deutsche Boerse AG (DBOEF, DB1.XE). Recently issued objections from the European Commission centered on the handling of derivatives--which the combined group would dominate in Europe--as well as the licensing of stock indexes. The two companies have checked at least one box off their list, however, as both won shareholder approval for the deal in July.

Wall Street Expectations: Analysts expect the company to report earnings of 45 cents a share on revenue of $143 million. A year ago, CBOE reported earnings of 20 cents a share, or 26 cents excluding stock-based compensation, on revenue of $106 million.

Key Issues: About 5.4 million options contracts changed hands per day in the quarter, which included August as CBOE's busiest month on record, driving activity in the company's key index options markets 70% above year-ago levels. Investors also will be looking for early signals on the performance of an all-electronic version of CBOE's heavily traded Standard & Poor's 500 index options launched earlier this month. Analysts see the product as one of the CBOE's biggest potential growth opportunities as its share of the trade in options on individual stocks has slipped.

(The Thomson Reuters financial estimates and year-earlier figures may not be comparable due to one-time items and other adjustments.)

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